How Impact Gets Exaggerated

When early during the last stop in my four-decade career in community marketing, we began to use input-output analysis to benchmark the impact of visitor-centered economic and cultural development, our organization was quickly asked for more.

The request was from Duke University asking us for visitation inputs to what has become a similar periodic computation of its impact on Durham, North Carolina, where I still live in retirement.

I remember initially having to go back and forth to explain why the University couldn’t just add up attendance at its various venues for sports, performing arts, museums and nature areas and trumpet it as generated by the University.

Airports similarly make mistakes on economic impact studies if they are not careful to net out the impact from residents and visitors not drawn just for the purpose of being at the airport such as people there to do business with the airport itself.

I explained that while the University did generate some of that activity, a good portion was from visitors here for other purposes who happened to also take in an event or feature at Duke.

Many are also the same visitors taking in more than one event or site and to merely tally them would be duplication.

This portion qualifies as “participation” in economic activity but not economic “value added.”  At the time, we settled on terming it “generated and participated in.”

But the same clarifications had to be made each year and possibly still do.

The same is true of destinations that might try to leverage more respect by aggregating attendance of all features.  Without an input-output analysis of spending, even if they remember that resident spending never qualifies as visitor impact, the gross numbers do not equal value added to the economy. 

Many of the attendees are the same visitors taking in different events while here for other purposes.  To lump them together may create a short term wow factor but it will also backfire and lesson credibility.

Research in Durham, for example, measures not only participation levels by visitors in various activities but the percentage of visitors for whom that was the main purpose versus the percentage taking in the activity on a trip for another purposes.

For example, the latter represents a third of performing arts attendance, 40% of shoppers, 20% attending sports events and 60% of those attending festivals overall.  This is even true of those attending conventions and meetings.

Organizations are under a lot of pressure from governing boards and sponsors to justify their efforts.  But rather than gloss over these distinctions, it is better to educate these overseers on the following:

• Drawing visitation is in part a collective effort.
• A part of that effort is the community’s overarching marketing both to lower barriers to visitation, get on the list for future consideration and generate circulation.
• It is smart to cross promote and also go after low-hanging fruit, such as visitors here for other purposes including visiting friends and relatives.
• When non-residents are hired or sponsors and vendors from out of town used, it subtracts from economic impact as leakage.   It also undermines organizations that provide underwriting from taxpayers.

For example, local officials are often perplexed when they see cars from out of town dealers displayed in front of city-owned facilities because they know the sales tax on vehicles sold here represents a significant amount of sales tax revenue used to provide local services.

I’ve tried to smooth this over by explaining that this is one of the results when 75% of attendance at these facilities are visitors, which is a good thing.

It is natural for out of town dealers to buy up sponsorships because they are trying to reach the visitors attending the event.

Local dealers aren’t interested because only 25% are residents.  They aren’t interested in the visitors because contrary to what purveyors of advertising on or in news outlets want us to believe, people rarely commute to by cars.

Still, officials also have a point.  It signals to resident taxpayers that the facilities and events that do this aren’t very loyal.  It undermines support for future facilities, even the so-called “back end” incentives to spur developments.

Those negotiating the latter often fail to stipulate behaviors that will leverage more economic bang for the buck, such as using local vendors or jawboning the importance of hiring locally or making sure new hires relocate here.

Durham’s marketing agency is considered a best practice now by accreditation standards, in part because it not only employs input-output metrics but it has learned to do them for local facilities and events.

In reports such as the one recently published and shown in the image above, the agency gives examples of leakage as well as creates a chart that breaks down why communities that fail to take this factor into account are also guilty of grossing up impact.

For example, Durham visitation creates nearly a billion dollars in spending but only $766 million is spent here in Durham.  But because of leakage such as using out of town vendors, employing non-residents and visitors misdirected while they are here only $560 million is “value-added” to the Durham economy.

In other words, local business practices, if tweaked, could result in another $200 million for the local business climate and a percentage increase in local tax revenues generated from visitors alone.

Policy makers in Durham are taking heed, although they may need to talk to American Tobacco a little bit.  Even just a little jawboning can be very rewarding.

Envy And Facility Addiction

It is in common use there now, but the first time I heard the phrase that “Raleigh has Charlotte-envy” it was used in an op-ed by a Raleigh publishing entrepreneur.

And he wasn’t referring to the popular massage franchise.  It was obviously a pejorative relating to North Carolina's two largest cities.

Similarly, Charlotte is said to have Atlanta-envy and Atlanta, well, let’s just say the reference is used to describe communities with a penchant for building facilities that make them resemble other communities at the expense of being less distinctive.

Overall, Durham, NC where I live has resisted that route but over the last two decades that resolve has been gradually undermined by forces  who are facility-driven, some external, some internal.

At stake is a distinct cultural identity and unique sense of place.  Being facility-driven is a slippery slope and Durham is well advised to learn from communities that are.

Many people trace Charlotte’s infatuation with facilities to 1959 and construction of the Charlotte Motor Speedway, which is actually in Concord, North Carolina.  Being overreaching seems be a side effect of having facility addiction.

But the earliest seeds of this addiction there may have been planted when that community’s first convention center, a 1911 private venture, failed and the city agreed to bail it out the owners.

Ironically, this first taste of Charlotte facility addition occurred just as the Olmstead Brothers (NYC Central Park) were laying out part of the Dilworth neighborhood, one of my favorites to visit and a remnant of which stands as a monument to when Charlotte valued more sense of place.

Contrary to a popular perception, I don’t think Charlotte was responsible for the misleading nomenclature for the speedway nor was it due to any infatuation by the founders.

Dating back to 1924, Charlotte had been the geographic home to a number of speedways including one that was called the Charlotte Speedway and another named the Charlotte Motor Speedway.  Ironically, the earliest races had been Indy cars.

When today’s Charlotte Motor Speedway was erected in 1959 in Concord, one of the partners was a racer and the other a car salesman who promoted races back then at two short-tracks including the old Southern States Fairgrounds Speedway at the Charlotte Fairgrounds.

Another was the Concord Speedway in South Concord which still exists approximately midway between the cotton farm where he had been raised and his new speedway.

Therefore, the name Concord Speedway wasn’t available.  But a few years earlier, the name Charlotte Motor Speedway had become available when the old track in Charlotte had been converted to a junk yard.

Simply put, the name was available and no truth in addressing was required, a registration loophole that still fosters ambiguity in far too many locations even today.

This period of name/location convolution and being viewed as a bedroom community for a namesake track may also be the genius of Charlotte identity issues that persist today.

But that city’s fascination with “coliseums” had begun with the opening of the “original” Charlotte Coliseum in 1955, now known as Bojangles Coliseum.

The “original” was supplanted by the “old” version in 1988, a facility that would be replaced and demolished before it was paid for by yet a newer facility which opened in 2005.  Each has been inhabited by a revolving door of pro basketball teams.

The “original” venue was populated by the Carolina Cougars of the American Basketball Association which was purchased in 1969 and moved to Greensboro, NC from New Orleans by a former North Carolina Congressman and unsuccessful Gubernatorial candidate.

Interestingly enough, according to the founder, he had won the then-fledgling Greenville, NC-born Hardees, now the nation’s fifth largest fast food chain, in a poker game less than a decade earlier.

The ABA experimented with “regional” venues that rotated home games to several cities.  In addition to Greensboro, the team played in Charlotte and Raleigh with even a few games in Winston-Salem.  Charlotte pressed for more games but Greensboro had the more active fan base.

The Cougars and the rotation idea weren’t that successful and new owners moved the team to St. Louis in 1974 where the team was not included in a merger with the NBA in 1976.

But Charlotte had caught facility fever and opened a new convention center just as the Cougars departed.  Maybe it isn’t coincidence that this was also when the Dilworth neighborhood began to fight for its life, just as the now highly coveted neighborhood does today as a five-story hotel is planned in its midst.

Within a decade of losing the Cougars and opening the convention center, Charlotte had built a new coliseum and community leaders secured an NBA franchise.  They also compulsively began agitating for a new convention center to keep pace with other cities.

Within another decade, their basketball team relocated to New Orleans (just desserts I suppose,) over a dispute for newer yet arena.  Soon after in through the revolving door came a new convention center and an NFL expansion team, the Carolina Panthers.

The Panthers privately financed their new stadium but leveraging $55 million in public sector contributions to secure the land and provide infrastructure improvements.  Otherwise it may have been built out across the county line from the Concord-base Charlotte Motor Speedway.

The team had been awarded to Charlotte but the owners pitched the team as a “Carolinas” team.  Regional names or slogans are now used as a means to try and fend off future teams in nearby cities or states or shun them as the Durham Bulls have by claiming to be “The Triangle’s Team.”

Charotteans were incensed the first year of play in Charlotte when the coach of the Dallas Cowboys couldn’t say for sure where the Panthers played (was it North or South Carolina where the team played its first season?) but there was nothing in the name of the stadium or the team to give him a hint.

It is unfortunate for host cities when denied the ability to fully leverage the advantages of identity with sports teams and facilities.  But it is a much larger price when communities become facility-driven.

The condition is irreversible as is the toll it takes when public resources are shackled away from being able to truly foster a community’s distinctiveness and sense of place which in the long run reaps far greater returns.

Facilities and sense of place work best when the former is kept in check and carefully calibrated to enhance the distinctiveness of a community.  Reverse the priority and communities lose their soul as well as any sense of perspective and proportion.

In the decade after Charlotte opened its mega-convention center, attendance at meetings nationwide dropped by another third, a long term trend.  Yet a decade after it opened, a newspaper headline there quipped, “convention center half empty, officials propose expansion.”

Charlotte’s other cultural facilities have also not been immune to the churn of facility addiction, often becoming pawns between development schemes.  Like any addiction, one for facilities becomes a furious, insatiable spiral with each fix demanding another and another.

Communities addicted to facilities also become event driven, using public dollars to “buy” events to create the illusion of activity masked by the use of metrics that gross up but fail to net out impact making it nearly impossible for the general public or news media to see that these subsides rarely return enough to cover the subsidy.

This is not due to a cover up.  Models don’t factor in the dislocation of existing activity or even many leakages.  Even when carefully calibrated to day-trip vs. overnight activity they don’t dig deep enough to account for in-kind public sector expenses such as security and sold waste.

Officials would rather explain an event subsidy that an operational deficit and local government accounting by its nature is not full-cost accounting, making it impossible to connect the dots.

The importance of distinctiveness and unique sense of place have only become more fully understand in the last decade.  For communities where it isn’t too late, they should be given full consideration in lieu of becoming facility addicted.

Often it comes down to whether a community is comfortable in its own skin.  Durham, which is, cannot afford to be too smug.

The “Low Hanging Fruit” Communities Overlook

In college I took only two courses labeled economics, one micro and one macro, even though I subsequently spent a forty-year career in economic development.

Let me explain why I think that when it comes to the former, so many communities and states overlook the “low hanging fruit.”

Of course, I also took a few other related courses that may now be labeled economics or at least business-related including those dealing with  behavioral economics (both consumer and organizational,) moral foundations theory and ethical systems design, which I found even more useful during my career.

Ironically, most economic developers from either the supply-side (traditional business or developer recruitment) or the demand-side (visitor-centric) don’t think much about economics, including the more relevant microeconomics. 

Humorously, Dr. Yoram Bauman, an environmental economist turned comedian, jokes that experts in microeconomics are “people who are wrong about specific (or little) things,” while experts about macroeconomics are “wrong about things in general.”

Seriously, the “low hanging fruit” of economic development involves simply plugging leaks.  A visual explanation of leaks is shown in this blog post from an ImPlan analysis of the visitor-related economy in Durham, North Carolina where I live.

Repeated every other year since the late 1990s , it documents that in 2010, visitors to Durham spent $903 million including spending en route with $704.7 actually spent in Durham.

But $202.7 million, or nearly 30% of that visitor spending here, leaks out of the economy when businesses hire non-residents or purchase goods elsewhere that they could purchase here.

This is not just about visitor spending, either.

Even greater “leakage” occurs when government agencies, universities and other major employers purchase goods services from outside Durham that could be purchased here or the purchase of which here could empower entrepreneurs and small, independent businesses to provide them in Durham instead.

In 1989, when we set about to jumpstart a community marketing organization for Durham, as I had earlier, in part, for Spokane, Washington and Anchorage, Alaska, one of the first policies we adopted was one to address leakage.

To set an example, the organization hired only Durham residents or those who would relocate here.  We also purchased goods and services only from Durham vendors whenever possible, a principle of microeconomics.

The exceptions were forms of research where objectivity was essential.

Sound and comprehensive economic development involves not only seeking new spending and investment but optimizing circulation and minimizing leakage.

But “globalization” was taking hold and my peers in other areas of economic development brushed off the of idea of helping to plug leaks by parroting an eighty year old saying that “a rising tide floats all ships.”

We know how that turned out but back then I was labeled parochial, especially by some media outlets making hundreds of millions in advertising that encourages leakage by hoodwinking consumers into commuting elsewhere to buy what they could easily find in their own community.

Ironically, the first time that “ rising tide” saying appeared in print was on page 26 of the Charlotte Observer on September 26, 1915 during the “Progressive Era.”

It was being used in sermons to link Christianity with unions and other societal improvements and then before and after WWI to point to a “new and nobler social order.”

By 1950 it had been coopted by states working regionally to stimulate economic recovery and by 1962, it was popularized by President Kennedy in a speech.

By the time I arrived in Durham in 1989, it was being used by economic developers, including chamber of commerce executives, to brush aside microeconomic advantages from hiring and buying local.  Some had been lured to the notion because if freed from promoting their local business climate they could poach members from anywhere.

The North Carolina General Assembly has purportedly made it impossible for local governments to link economic development incentives to hiring and buying local and against the law for them to use it as internal purchasing policy.

But the answer has always been both/and.  Globalization took off in the 1990s but by 2005, even President Clinton’s economic advisor wrote in a Washington Post op-ed that some of the “boats” ran aground and by 2008, a Harvard Magazine analysis acknowledged the resulting disparity, now characterized by the 1%.

The importance of hiring and buying local as an economic development strategy has been renewed.  It has been revived in news magazines, and a white paper published by the New Economics Foundation included local purchasing in “Ten Steps to Save the Cities: The new economics agenda for thriving local economies.”

On November 30th, American Express will sponsor its third annual Small Business Saturday to encourage shoppers to “shop small” and support locally-owned establishments in their communities instead of big chain or formula retailers.

Last year, awareness of the campaign jumped to nearly 7-in-10 consumers and nearly half of them spent $5.5 billion in small, local businesses on that day alone.  Communities have a stake because dollars spent in local, independent business have more than twice the economic impact of those spent in chains.

Even without the backing, they should have.  “Buy local” initiatives such as “Sustain-A-Bull – Shop Independent Durham” where I live are shown to be an advantage for overall community economic performance.

Savvy communities are shifting their economic development resources from just business recruitment to retention to “buy local” as well as establishing “localist policy agendas.”

Duke University is arguably the most responsible for the rejuvenation of Downtown Durham by leasing millions of square feet of space that adaptive reuse developers took straight to the bank as backing for construction loans.

Beginning in the early 1980s, it has done the same to a much smaller extent to invigorate the Brightleaf and Ninth Street districts.

Just imagine the even greater community-wide influence it would have by redirecting all of it university and medical center purchasing to local, independent businesses or as incentive for entrepreneurs to develop the means to serve their needs.

The economic impact would be even greater.

Durham Taxpayers Deserve Something Better Than “Lowest Bidder”

The “lowest bidder” process used by Durham’s local governments works well enough as long as tax dollars are reinvested back into the very economy from which they are levied.  However, when it leads to purchasing supplies and services that are not locally based, it is a false economy indeed and shortchanges Durham taxpayers.

Local taxpayers deserve not only the best price possible for the initial purchase but the direct, indirect and induced economic impact their tax dollars can create when injected back into the local business climate, including the creation of jobs and additional tax revenue that can lessen the per capita burden.

It is time for Durham’s local governments to develop a formula that goes beyond “lowest bidder” and factors in the economic impact, including jobs and additional local tax revenues that will be lost if and when a non-local vendor is selected.  If the decision is made to ship tax dollars out of Durham for a purchase or contract, it should be made on more than the price of the goods and services alone and with full awareness of what that decision will cost the local business climate.

I’m not merely referring to the 5%-10% preferences given by some communities and states.  I’m very familiar with that approach from  managing the destination marketing organization in Anchorage, Alaska, a community and state long aware of the importance of developing economic self-sufficiency by leveraging every purchase possible to invigorate and stimulate development of Alaska-based businesses.  However, I’m talking about something much more sophisticated and accurate than a simple preference.

It is now possible with models like Implan Input-Output which has been deployed for more than a decade now by the Durham Convention & Visitors Bureau with the assistance of HIS Global Insight to very accurately assess the true value to Durham’s economy specifically from visitation including the many industries that comprise the tourism sector but also leakage lost when those businesses fail to use local vendors or hire employees who commute here for work but then take all but a small fraction of their spending out of Durham.

I believe Durham’s local governments could cost-effectively develop and use a similar approach to help factor economic opportunities that are lost when local tax dollars are used instead to purchase goods from vendors located outside Durham.  This approach would result in far more informed decisions and another demonstration of Durham’s innovative spirit.

The formula could be quickly applied to any purchase or contract decision to better inform the “lowest bidder” process and balance any decisions to use non-Durham vendors with a full understanding of the “cost” of lost economic opportunities when those tax dollars are not injected back into the local economy.   Leading the way, Durham’s local governments would then be in a position to demonstrate to major employers like Duke University how their purchasing decisions can likewise be more beneficial to the local economy.

As a result Durham taxpayers would get far more “bang for the buck” than is currently generated by solely using the “low bidder” process.